When a federal district court judge sided with the Biden administration in an anti-trust ruling, requiring a breakup of the JetBlue-American Airlines “Northeast Alliance” which had been approved by the Department of Transportation, I wrote that the airlines had a strong case to make on appeal so the question is whether they’d actually appeal.
JetBlue, trying also to buy Spirit Airlines, had faced government opposition to that deal also. But they now had something to trade.
- An unfavorable anti-trust ruling could get them out of paying a big breakup fee to American Airlines for ending the partnership.
- JetBlue seemed to prefer its acquisition of Spirit Airlines over its partnership with American.
- Would they be willing to forego an appeal in exchange for assurances from the federal government that they could get a deal done to allow the Spirit merger?
American Airlines publicly announced that they planned to appeal the anti-trust ruling. However JetBlue decided not to appeal, saying they would turn their focus to the Spirit acquisition. The only reason to do this is if they got something in exchange, otherwise they could continue their appeal. Doing so would cost them legal fees, but could have upside, and in any case why unilaterally hand over a bargaining chip that the government wants unless you expect it to get you something?
Investment banking firm T.D. Cowen says that with the airline not appealing the anti-trust ruling against their American Airlines partnership, an anti-trust settlement allowing their Spirit Airlines acquisition to move forward may be in the offing after Labor Day or at least in advance of a trial set to begin in October.
Could a DOJ-JetBlue settlement still be possible?
"We believe it is possible after Labor Day, or later in September, JBLU and DOJ will get together to agree to various other remedies that would enable the merger without a trial," wrote TD Cowen analysts Friday. $JBLU $SAVE pic.twitter.com/7YrGmu0lxU
— Edward Russell (@ByERussell) August 25, 2023
The Biden administration needs to frame this as a win against airlines. They’ve notched a ‘win’ against the American-JetBlue deal, but need JetBlue to sign off on changes they can frame as pro-consumer. Ironically, though:
- It was always clear that the JetBlue-American partnership both allowed and incentivized the two airlines to be more aggressive competitors against United and Delta, the two dominant carriers in New York. With the partnership winding down, we’re seeing both become less effective as competitors, especially American. The anti-trust ruling is reducing competition in New York, not increasing it.
- The JetBlue acquisition of Spirit was always going to be worse for competition out of the two arrangements. The American partnership required an increase in total seats in the New York market, under penalty of losing slots. Increased seats (supply) ultimately means lower prices, not just more competition.
On the other hand, JetBlue plans to take all of Spirit’s planes out of the ultra low cost business model, remove seats from Spirit planes, and charge higher fares than Spirit does. JetBlue highlights themselves as a disrupter in the airline industry, but that harkens to a long-lost time well over a decade ago. Their product is far less differentiated, and their fares higher than the competitor they’re buying.
It will be a sad outcome if – to the extent only one of the two deals could happen – the more anti-competitive one likely to drive up prices is the one that Biden administration signs off on. Of course leaks of expected 40% fare increases don’t make it easy for the Department of Justice to sign off as JetBlue clearly hopes.
This administration pays lip service to consumer rights. It’s bark is more than its bite. Also prices have soared in almost every segment of the economy with inflation eating into purchasing power, so why should this ineffective administration truly care about airline price increases which will certainly materialize with this ill fated merger. Jet Blue only wants the pilots and planes, they have made it obvious they aren’t buying Spirit for any other reason.
It is the right of the business to do as they please and the right of the consumer to vote with their wallet. Aviation is ABSOLUTELY NOT a monopoly like many think it is.
Jet Blue and Spirit seems like a culture clash waiting to happen
One will raise the other up or drag the other down.
The people. The culture. The clientele. Very very different
This will be a clusterF
@smr then why are foreign carriers forbidden to transport passengers within in the United States under cabotage laws?
I think that it’s really apt for the legacy of spirit for it to be scrapped for parts. I mean that is so fitting. The problem is that American should be scrapped for parts. That would be fun.
An article came out today with JetBlue’s response regarding the “leaked” 40% price fare hike. It looks like the headlines were false. The redacted text was content written and produced by Alioto in their own court filing, NOT redactions to JetBlue internal docs. Looks like the media got it wrong here.
https://www.tradingview.com/news/mtnewswires.com:20230825:A2974406:0-jetblue-says-reports-of-possible-price-hikes-after-planned-spirit-merger-based-on-flawed-interpretation-of-documents/
Good for JetBlue.
Gary has defended the NEA eight ways from Sunday, but it is not DOJ’s fault that AA now chooses, unilaterally, to retreat from NYC. AA is declining to compete, pure and simple. Colluding with B6 via the NEA may have resulted in a temporary critical-mass combatant against DL/JFK and UA/EWR (though a distinctly smaller and weaker one), but now that the NEA is (IMO properly) dissolved, AA is perfectly free to bulk up organically. Instead it is resorting to a common gambit in the US airline industry: whining. Good luck in PHL then — nobody’s idea of a good place to arrive, depart, or connect. As Lisa Simpson told Bart: You ordered it. You eat it.
As for B6: Some terrible disasters erupt with no notice, some loom with plenty of explicit warning, and B6+NK is the latter kind. Leave aside that B6 flatly cannot run the network it’s got — check the cancellation roster compiled by FlightAware any day you like — and that it has absolute-zero experience integrating incompatible fleet, routes, and personnel at scale. Knocking out an LCC in order to reduce consumer choice and hike fares is in nobody’s interests but the shareholders. It is odd that the Biden DOJ, having correctly filed to stop this merger, seems now on the verge of approving it. It should not go forward. Assuming DOJ caves, more years of misery lie ahead for what is left of the long-suffering JetBlue customer base, and a whole class of Spirit customers will be forced onto Frontier, Allegiant, Greyhound / Flixbus, or into their cars.
@Tom – “Gary has defended the NEA eight ways from Sunday, but it is not DOJ’s fault that AA now chooses, unilaterally, to retreat from NYC. AA is declining to compete, pure and simple.”
AA lacks the government-regulated slots to offer the breadth of service that Delta can, and the gates to offer the service that United can.
@Gary: AA surrendered numerous slots and gates of its own volition, some in the time of the US merger, more recently because it literally forgot about them. The airline’s suffering from the consequences of its own actions.
Tom,
we need to have lunch together some day.
Gary,
You do realize that AA was slightly larger than DL at JFK at the time that B6 was created via a gifting of slots?
DL got to the size at JFK almost entirely via organic growth – mostly when JFK was not slot-controlled. They got very few slots from UA as part of the failed DL JFK/UA EWR slot agreement that came when UA left JFK.
At LGA, US under Doug Parker and Scott Kirby (who now runs UA) couldn’t figure out how to use 1/4 of the slots at LGA – so they entered into the slot swap deal with DL involving DCA for LGA slots. Not only did DL work for 2 years to get the deal approved, but DL gained more LGA slots for every DCA slot it gave up and then the “side” costs including a frequency for a Brazil flight were offset by new Brazil rights. Add in that US and AA had to divest the equivalent amount of DCA slots that AA brought to the merger because US had more than 50% of DCA slots after the slot swap w/ DL.
Let’s not forget that Doug Parker went on to lead AA for years after the merger and Scott Kirby got booted at AA so ended up at UA – where he has whined about not being able to get back into JFK and having to deal w/ the capacity restraints at EWR – where UA operates a far larger operation from fewer runways than DL does at JFK.
Even before the US merger, AA didn’t want to grow at LGA when it was slot-restricted;; they asked the government to eliminate slots. DL grew at LGA while AA shrank or squatted on slots.
The simple answer is that DL has demonstrated far greater strategic thinking regarding NYC than AA, UA or US over the past 25 years and it is precisely because AA not only chose not to grow but has engaged in every tactic under the sun to NOT fly the slots it did hold.
Perhaps one day you will finally come to grips with the reality that AA is now reaping the fruit of 25 years of strategic failures in NYC while DL has grown at every chance it could. UA put all its eggs in a basket that is not big enough to hold all that UA wants to put in it.
AA and US have simply strategically failed in NYC and are reaping the inevitable outcome of their decisions.
Parker and Kirby never learned how to compete in very competitive markets which is why AA’s route system has increasingly moved away from large competitive markets like LAX, ORD and NYC and to hubs it can dominate including DFW, CLT, MIA and DCA.
Ironically, Kirby learned to compete in large competitive markets when he came to UA.
AA is not and never has been disadvantaged in NYC. They simply repeatedly chose not to compete and now have to live with the consequences.
Some day you will understand the world as it really exists and now how you want to see it.
@Tim Dunn – “You do realize that AA was slightly larger than DL at JFK at the time that B6 was created via a gifting of slots?”
Pre-9/11 not super relevant to current world. Delta played New York brilliantly. Parker at US Airways, prior to taking over American, made a huge strategic blunder in selling his LGA operation to Delta.
New York pre-consolidation had a lot of smaller players. Combine United + Continental, Delta + Northwest and the acquisition of the US Airways position, and you’ve got fewer players that are larger.
Ok, American strategically failed in New York. I’ve been saying that for nearly a decade. And that’s why the federal government’s shift in stance to oppose the NEA was a mistake. Because they could have been a competitor.
Help an Airline in a Blue State screw over 1 in a Red State and gobble up another in a Red State. Then raise prices on poor people. Sounds like Bidenomics to me!
Gary,
the relevance of the year 2000 (pre-9/11) is that was the year when JBLU was created by granting of slots at JFK – which was also in the final years when AA and DL were about the same size.
AA, B6 and DL were about the same size until B6 started growing to the Caribbean, DL closed its DFW hub and started aggressively growing in NYC, and AA first codeshared w/ B6 under an arrangement that would not have been ruled illegal.
You continue to believe that it is ok for a company to break the law if it accomplishes some other goal – in this case, your belief that AA/B6 under the NEA could have been a bigger competition to DL and UA in NYC.
That is just simply not the way the law works.
If one is in violation, you pay the consequences. The judge in the NEA case specifically noted that AA and B6 could have developed a relationship similar to what AA and AS have – and AA itself wrote in documents that came out in the trial that they knew the NEA was legally risky
It really shouldn’t come as any surprise that it was shot down and it also shouldn’t be cause for crying for either AA or B6.
The B6/NK merger crosses equally risky lines by merging a LCC with a ULCC.
TD Cowan might want to believe that there will be a settlement after Labor Day but I don’t honestly any evidence they know anything any of the rest of us don’t know.
Below is a comment that I made on another web site concerning B6 & NK.
All are harping on individual airline ticket prices, yet no mention of hubs, focus cities, & competition:
– B6 is focused on the east coast (BOS, JFK, FLL & MCO); west coast (LAX); and the Caribbean (SAN)
– NK is more focused on the heart land (ATL, ORD, DFW, DTW, IAH, LAS); with overlaps at MCO & FLL
– the combined B6/NK will be competing head on with established trunk line carriers (DL, UA, AA, WN) in each of the above airports via hub, focus city, and/or crew base scenarios
– the competing airlines will dictate the fares that are charged by B6/NK, not the newly merged airline.
– once a competitor feels threaten at one of its bases, an ensuing price war will develop in which no one wins
B6 has no choice. It missed its opportunity when it let Virgin America pass thru its fingers. It needs Spirit for long therm growth and survival. If not, someone else will suck it up and we’ll all cry about a lost opportunity.
@Tim Dunn “You continue to believe that it is ok for a company to break the law if it accomplishes some other goal ”
“Break the law” is not so black and white in anti-trust, everything is an anti-trust violation. If your prices are too high, it’s predatory pricing. If prices are too low is dumping. If prices are the same it’s collusion. And the DOJ pursued a case and found a willing judge whose decision was outside the mainstream of precedent in terms of focus on consumer benefit. That “other goal” is the crux of antitrust precedent over the past 40 years.
No two US airlines can have antitrust immunity in the domestic market is pretty black and white, notwithstanding the short term, very focused exception you have found in the Hawaii market